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In a lengthy interview with Politico in April 2020, seven months before the presidential election in the United States, Democratic candidate Joe Biden described his ambitious programme of increasing public spending, adding a puzzling exclamation: ‘Milton Friedman is no longer running the show.’ He seemed to be saying three things: that Friedman had indeed been ‘running the show’ which presumably meant that he had significantly influenced economic policies for a long time; that he was perhaps not as relevant now as he had been for the last forty or fifty years; and that those who supported Friedman’s ideas should vote for Donald Trump rather than Biden (which may have confused some of my libertarian friends who voted for Biden out of their deep-seated hostility to Trump). In an informative and well-written new biography of Milton Friedman, The Last Conservative, Stanford historian Jennifer Burns tells the remarkable story of the Jewish boy from Rahway, son of immigrants, small of stature, but intelligent and hardworking, who challenged conventional wisdom in economics, eventually seeing his own ideas become the new conventional wisdom. Burns has diligently studied Friedman’s voluminous archives at the Hoover Institution, and those of his friends and colleagues, and she produces what is not primarily a personal portrait of Friedman, but rather a readable intellectual history of the Chicago School in economics. She keeps her distance, but is usually fair and balanced in her opinions. I was not Friedman’s student, but I had the good fortune to get to know him and his wife Rose well over the years, through my participation with them in the Mont Pelerin Society (an international academy of liberal and conservative scholars, activists, and men of affairs); during their visit to Iceland in 1984; and as Visiting Scholar in the 1980s and 1990s at the Hoover Institution where I often met them.
Monetarism an Old and Venerable Idea
Friedman once described to me the three stages in how he was received. First, he was ignored. (His 1962 book, Capitalism and Freedom, brimming with fresh ideas and ingenious proposals, was not reviewed in any major newspaper or magazine in the United States.) At the second stage, he was ridiculed. (Robert Solow said that everything reminded Friedman of money, and that everything reminded himself of sex, but that he kept sex out of his papers.) Finally, they said: Well, of course money matters, but that is no news. Friedman is telling us something we already knew. The critics at the third and final stage were both right and wrong. In fact, David Hume and before him the Salamanca School had presented what came to be known as monetarism: that inflation came about when the growth of money exceeded the growth of total production. Friedman revived this old and venerable theory and demonstrated that the Great Depression in the United States in the 1930s was caused by a great contraction of the money supply. It was mainly triggered by the refusal by the Federal Reserve Board in December 1930 to rescue the large Bank of the United States, possibly because it was controlled by Jews. The refusal reinforced the existing but manageable liquidity crisis. In a fractional reserve banking system, no bank can withstand a run on it, and a series of bank failures followed. In the liquidity crisis of 2007–2009, the Federal Reserve Board did not repeat its mistake from 1930, as a result of Friedman’s analysis.
Friedman’s Women
On the occasion of this new and excellent biography about Milton Friedman, I would however like to make three observations. First, Burns points out that two women economists assisted him greatly, his wife Rose Friedman and Anna J. Schwartz, his co-author of the seminal Monetary History of the United States. Burns acknowledges that Friedman showed them full respect, but she should have stressed it more. Her praise is too faint. Friedman never tried to play down their significance, and it was his forceful intervention which finally got Schwartz her well-deserved doctorate. I often witnessed the debates between Milton and Rose Friedman, and she usually held her own against the quick-witted Milton. Once, when I was driving around Reykjavik with them, Rose asked me why we kept speaking Icelandic. Would it not be much more efficient for us to adopt English? (This is what happened in Ireland, and Scotland.) Milton intervened and said that of course the Icelanders wanted to speak their own language. It was an integral part of their identity. I agreed with Milton and tried to explain that the Icelanders shared a history of eleven hundred years alone on a remote island, struggling against foreign oppression and the harsh forces of nature and developing a strong sense of national identity. Both Rose and Milton had good arguments to support their positions, or rather their suggestions. They were thinking out loud, not asserting anything dogmatically. I always had the impression that Rose was the more conservative of the two. She was more of a tough-minded economist and less of a well-rounded philosopher than her husband.
Enforced or Spontaneous Social Integration?
In the second place, and more controversially, Burns says that Friedman’s opposition to the 1964 Civil Rights Act casts a shadow over his legacy. But I think she does not render full justice to his position. Friedman was a consistent classical liberal who believed that the conditions of groups that were meeting hostility or contempt from others could best be improved not by laws prohibiting discrimination against them, but by creating opportunities for those groups to better their conditions and subsequently to earn respect. If he had to choose between enforced segregation and enforced integration, he found it impossible not to choose integration. But Burns ignores that for the classical liberal the emphasis was on ‘enforced’. As a Jew, Friedman knew all too well the evils of racial prejudice. But he wanted spontaneous rather than enforced social integration. Public institutions should not be allowed to discriminate, but as a classical liberal he thought that individuals and private clubs could (even if he personally disagreed with them), whereas the cost of discrimination would be borne not only by the targets, but also and mainly by the perpetrators. This would gradually bring discrimination down to an insignificant level. You do not shout abuse at somebody you see as a potential customer. You do not discriminate if the cost is significant. Friedman often noted that in two of the most competitive activities in the United States, music and sports, there was little if any racial discrimination.
Where Race is Not an Issue
The modern race problem in the United States must be connected with how brutally slavery was abolished. Compare the overseas dominions of Great Britain, and Brazil. In the British dominions, the slave trade was prohibited in 1807 and slavery abolished in 1833. But slave owners were compensated for their loss, and the transition was peaceful. The abolition of slavery was also peaceful in Brazil which of all American countries had received the largest number of slaves from Africa, about 40 per cent of the ten million in total. First, in 1831, the import and sale of slaves was prohibited although admittedly this law was not always respected. In 1871, the children of slaves were given freedom. In 1885, slaves over sixty were given freedom. Manumission was made much easier then in the United States. When slavery was finally abolished in Brazil by an 1888 law, only one fourth of the black and mixed population of Brazil was still enslaved. Since then, not least as a result of widespread interracial marriages, the while, black, and indigenous populations have been well integrated. Even the Jews and the Japanese often marry outside their traditional communities. Brazil has been a real melting pot from which blacks and other people of colour have not been excluded as in the United States. Almost everybody in modern Brazil is of mixed origin, and it seems to me, as I live in Rio de Janeiro half the year, that nobody bothers about race. If you have reservations when your daughter presents you with a black boyfriend, it is not because he is black but because he might be poor, because blacks in general are poorer than whites. You want your daughter to have a good life. But as soon as you find out he is not poor, your reservations disappear.
Race is therefore not an issue in Brazil as it has long been in the United States where it took a civil war of five years and 700,000 deaths to abolish slavery, with the South in ruins. The civil war was a tragic mistake. Instead of imposing abolition on the Southern states, the Northern states should have facilitated the gradual reduction of slavery as in Brazil or some compensation to slave owners as in the British Empire. Then, 700,000 lives would not have been sacrificed. The defeat of the South led to hostility to the black population by the humiliated white Southerners. When these states were readmitted into the Union, their white population expressed their anger by their blatant and cruel discrimination against blacks—a discrimination which lingered on for a century. Unlike Brazil, race is still an issue in the United States. For example, the blacks are victims of minimum wage laws and abysmal public education in their neighbourhoods.
Friedman in Chile
It seems that Jennifer Burns faults Milton Friedman for not engaging in virtue signalling about civil rights, because he found spontaneous integration, as a result of economic growth and market competition, to be more desirable and more effective than enforced integration. The same may be said about her account of Friedman’s famous trip to Chile. It is a fair and balanced account, to be sure. The so-called Chicago boys from Chile were mainly students of Friedman’s colleague at Chicago Arnold Harberger (who had a Chilean wife). They had in 1971 prepared a comprehensive liberalisation programme for the conservative candidate in the 1971 presidential election when Allende became president with about 36 per cent of the votes. Although lacking the support of 64 per cent of the voters, Allende wanted to impose socialism on Chile, and his most radical followers tried to follow the lead of Fidel Castro in Cuba, illegally taking over large farms and factories and hiding weapons in secret depots. The parliament called for Allende’s departure, and the military finally overthrew him after two chaotic years. In the beginning, the generals had unclear ideas about how to deal with the unstable economy, but soon they adopted the liberalisation programme of the Chicago boys which had been made even more comprehensive. In 1975, Friedman was invited to Chile where he met with Pinochet and endorsed the programme. He gave the same advice to the Chilean dictator as he gave to the dictators in Yugoslavia and China: privatisation, stabilisation, liberalisation. Thus Friedman could in no way be considered the author of Pinochet’s policies or even an adviser to the dictator, as Burns patiently acknowledges and explains. But she seems to think that he should have condemned the Pinochet regime directly and bluntly instead of declaring his general support for democracy.
Should liberal economists refuse all cooperation with dictators? Putting it differently: Should liberal economists when given the chance to work out ideas about bettering the condition of ordinary people refuse to do so because it would be dictators who would be implementing these ideas? Although Benjamin Constant had been a fierce critic of Napoleon, he advised him on a new constitution in 1815. Ludwig von Mises also advised Chancellor Engelbert Dollfuss who had seized power in 1934 after a brief civil war against the Social Democrats. Friedman pointed out that increased economic freedom in Chile was likely not only to lead to prosperity, but also to increased political freedom in the long run. He was actually right about that. Pinochet, unlike Castro in Cuba, allowed free elections, accepted his defeat and stood down. Friedman also pointed out the hypocrisy of the Left which criticised him for advocating economic liberalisation in Chile, but said nothing when he advocated economic liberalisation in China, a country much more tightly controlled. Arguably, Friedman inspired liberalisation in Chile in the 1980s. But at the same time he also inspired liberalisation in New Zealand and in the United Kingdom. In other words, three very different governments took his advice, a military junta in Chile, Social Democrats in New Zealand, and Conservatives in the United Kingdom. This shows that his ideas had wide applicability and could be implemented under different regimes. The easy way out for Friedman would of course have been to do the virtue signalling Burns seems to have expected from him and to refuse to have anything to do with anyone not acceptable to American faculty clubs.
An Inspiration
I do not accept, then, that Friedman’s opposition to the 1964 Civil Rights Act in the United States and his support in 1975 of the liberalisation programme in Chile cast a shadow over his legacy. What was also remarkable was that Friedman inspired the return in the 1990s of the former communist countries in Central and Eastern Europe to normalcy. Russian-American economist and Harvard professor Andrei Shleifer asks: ‘In the Age of Milton Friedman, the world economy expanded greatly, the quality of life improved sharply for billions of people, and dire poverty was substantially scaled back. All this while the world embraced free market reforms. Is this a coincidence?’ Milton Friedman was never running any show. Life is not a circus, or a cabaret, as Joe Biden seems to think. But Friedman inspired many people with his eloquent defence of economic liberty and his practical advice, including President Ronald Reagan, seen above honouring him. Hopefully, Friedman will continue to inspire many more.